A puttable bond is a bond which contains the option to sell the bond back to the issuer on certain pre-specified dates (or even on only one date) before its maturity date. The sale price of the bond is usually its par value (face value).

The option protects the holder of the bond (investor) against rises in interest rates, as the investor can exercise the put to sell the bond, and then reinvest the proceeds at a higher interest rate.

The attraction to the issuer of the bond is that coupons on the bond are usually lower than they would be without the embedded put option.

Bond + Swaption

A puttable bond may also be thought of as a long position in a bond coupled with a paying fixed receiving floating swaption.

Also Known As

Puttable bonds are also known as option tender bonds, retractable bonds, multimaturity bonds or put bonds.